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When I was a condo owner I was part of a self-managed HOA (13 units) which was great bc we could collectively determine what we wanted to use our reserves for when a once-off came up. In the five years that I owned that condo we had exactly one special assessment because the basement stairs were not up to city code & we had to repair them. And we voted to special ourselves bc it was such a nominal figure. The only truly big thing we had repair wise while I lived in that building was that we had to resurface our roof at one point but we just paid out from the reserves to make that happen.
Quote:
Originally Posted by cully
How do tenants own?
Simply put, the owners own the insides of their condos, storage units and parking & the HOA collectively owns the parts of the building that are common to everyone - roof, basement, staircases, elevator, outer structure, deck, walkways, etc. So as a condo owner, you pay your mortgage and whatever utilities are in your unit yourself and you also pay a monthly HOA fee to fund shared building expenses (trash, recycling, snow removal, landscaping, salary for doorman if your building has one, etc) and the building reserves which is basically the savings account for the building. If your building needs to make a major repair and the reserves don't cover it or if the HOA votes to pay out of pocket for the repairs, then a special assessment is due which is basically [repair cost] / [# of owners in the building]
Always check out the HOA's budget and the reserves before you buy a condo or a townhome!
A well run association will have a Reserve Study done to determine the life expectancy of things like roofs, siding, etc. They will then set money aside each month in Reserve Funds (from monthly dues) to pay for such when needed.
A poorly run association will wait until work needs to be done then just assess each owner to cover the work.
In many associations people get upset when a portion of their monthly dues are being set aside of something that will have to be replaced (like a roof) especially when they will not be there as in they will move on or die.
Not 100% true.
My friend has a condo which is mainly doctors, lawyers and bankers. They voted to keep maint as low as possible and then do lump sum assessments for repairs.
Their theory is condo can only invested in FDIC bank accounts paying near zero. They invest in Stocks, Bonds, Investment RE with a much higher return. When Assessment comes they just write a check.
Also a lot of investor property and it is a clear cut capital improvement lowering basis in property rather than mixed in with an assessment
When I was a condo owner I was part of a self-managed HOA (13 units) which was great bc we could collectively determine what we wanted to use our reserves for when a once-off came up. In the five years that I owned that condo we had exactly one special assessment because the basement stairs were not up to city code & we had to repair them. And we voted to special ourselves bc it was such a nominal figure. The only truly big thing we had repair wise while I lived in that building was that we had to resurface our roof at one point but we just paid out from the reserves to make that happen.
Simply put, the owners own the insides of their condos, storage units and parking & the HOA collectively owns the parts of the building that are common to everyone - roof, basement, staircases, elevator, outer structure, deck, walkways, etc. So as a condo owner, you pay your mortgage and whatever utilities are in your unit yourself and you also pay a monthly HOA fee to fund shared building expenses (trash, recycling, snow removal, landscaping, salary for doorman if your building has one, etc) and the building reserves which is basically the savings account for the building. If your building needs to make a major repair and the reserves don't cover it or if the HOA votes to pay out of pocket for the repairs, then a special assessment is due which is basically [repair cost] / [# of owners in the building]
Always check out the HOA's budget and the reserves before you buy a condo or a townhome!
Good info but I was referring to the original post where it was said the tenants owned the unit....not the landlord/unit owner. Tenants being renters.
I would say check the docs, in the past I had a HOA tell my new construction plans did not meet the rules. I took a look through the docs dating back from the 1960s....and they showed that someone had re worded a sentence to suit what they wanted. They just changed 'or" to "And"....
I challenged them and requested they fix the agreement which had been illegally changed, and I suggest they avoid further legal issues by telling the rest of the members (dispersed around the country) about the "error".
Funny enough I have had zero issues with them since...
I would say check the docs, in the past I had a HOA tell my new construction plans did not meet the rules. I took a look through the docs dating back from the 1960s....and they showed that someone had re worded a sentence to suit what they wanted. They just changed 'or" to "And"....
I challenged them and requested they fix the agreement which had been illegally changed, and I suggest they avoid further legal issues by telling the rest of the members (dispersed around the country) about the "error".
Funny enough I have had zero issues with them since...
My friend has a condo which is mainly doctors, lawyers and bankers. They voted to keep maint as low as possible and then do lump sum assessments for repairs.
Their theory is condo can only invested in FDIC bank accounts paying near zero. They invest in Stocks, Bonds, Investment RE with a much higher return. When Assessment comes they just write a check.
Also a lot of investor property and it is a clear cut capital improvement lowering basis in property rather than mixed in with an assessment
In some states you MUST have reserve funds. You also need a certain percentage going to reserves for some types of financing.
In some states you MUST have reserve funds. You also need a certain percentage going to reserves for some types of financing.
Most states you are not required by law to have a reserve fund or to do a reserve study. For instance New York which has tons of condos neither are required.
Smaller condos usually don't do it in NY. I am a treasurer of a condo association. Legally it is in our best interest not to have a reserve fund. Why, when I reserve funds it can only be used for that purpose so if I have a crisis issue I have to do and assessment or take a loan out even though I have the cash, plus it is all at near zero percent interest in FDIC savings account plus I would have to pay for an expensive reserve study and open up the association to lawsuits from new buyers if we reserve wrong.
To limit risk every owner is responsible for their own HVAC, Hot water heater, windows and doors and decks and outdoor space is all blacktop, grass and bushes. No amenities. It leaves us the Roofs as only big expense and pretty much that is fairly easy to figure out when you need to spend money on it.
We are able to keep costs down by not reserving and most owners care more about cash flow anyhow. That said in my general fund I have around 9 months maint per unit which is pretty good.
In some states you MUST have reserve funds. You also need a certain percentage going to reserves for some types of financing.
Certain amount of money going towards reserve is a requirement for low down payment, FSA, Fannie or Freddie or VA loans. You know the 3-10% percent down loans. Then your building submits proof and becomes Fannie/Freddie Eligible building.
Issue is it requires work from a non-profit board or managing agent charges us to do. In return sellers soon to be ex-owners have a higher pool of folks to sell to and perhaps could get a higher sales price.
In return condo association does un-paid work and we have new owners with less skin in game more likely to default or go into arrears. The majority of condos near me do not want to be eligible for that type of financing. My building the local banks lend at very low rates in my building with 25% down. Which means less defaults in the future. As a board member I think about building as a whole and soon to be ex-owners are not a big concern of mine.
Location: St Thomas, USVI - Seattle, WA - Gulf Coast, TX
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Echoing others: Yes, this is a "special assessment." It's not uncommon (unfortunately) and happens when there are not enough available funds in the HOA reserves, either due to unexpected repair costs or poor management. It means that owners have not been regularly paying high enough dues to cover costs up to this point, and have to make up for it now. Your friend should receive copies of yearly budgets/expenses and reserve studies, as well as have a copy of the bi-laws for her community. It's all very standard stuff.
A well run association will have a Reserve Study done to determine the life expectancy of things like roofs, siding, etc. They will then set money aside each month in Reserve Funds (from monthly dues) to pay for such when needed.
A poorly run association will wait until work needs to be done then just assess each owner to cover the work.
In many associations people get upset when a portion of their monthly dues are being set aside of something that will have to be replaced (like a roof) especially when they will not be there as in they will move on or die.
A Special Assessment is usually the result of decades of poor financial management by the revolving door of volunteers who serve as board members. Many do not understand their fiduciary responsibility to put the interests of the association above their own or that of their neighbors and instead focus on so called affordable assessments instead of ensuring adequate funds are set aside for major repairs and replacements.
It's not rocket science to comprehend that a roof has a projected lifespan of X years, a remaining useful life of Y years and will cost $z to replace. If on day one, 1/20 of the projected replacement cost divided by the number of units, were to be set aside each year, the likelihood of a future Special Assessment diminishes.
A few states require HOAs to maintain a reserve study and report what percentage of reserves are funded to all owners. In absence of " percentage funded" there is no reasonable way to assess the adequacy of reserves to take care of business when it needs to do so.
Most people would think an HOA with $ 1 million in reserves would be in a better position than an association with say $100,000. Unless one understands that, for example, the HOA with $1 million was only 55% funded and the HOA with $100,000 was 101% funded, the value of the reserve is meaningless and usually misleading information.
As you say, it's common for people to not understand the financial picture of the association and resent that funds are set aside to take care of future business. Even in those associations with appropriately funded reserves, there is a tendency for many owners to want to spend reserves on things not intended, because " we have the money".
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